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A Little-Known Way to Invest With Buffett – For 79 Cents on the Dollar

By Dr. Steve Sjuggerud
Tuesday, January 31, 2012

To me, the Boulder Total Return Fund (BTF) is one of the biggest anomalies in the stock market...
 
You could make a 27% return in this fund – in one day – if the fund liquidated itself. And the fund, as I'll show, has every reason to consider that option. It is an interesting story...
 
As I write, the Boulder Total Return Fund trades at a 21.3% discount to the value of the shares of the companies it holds.
 
Said another way, it sells for 79 cents on the dollar. So if the fund simply sold the stock it owns today at market value and distributed that cash, you'd collect a 27% profit.
 
The fund has a fantastic portfolio... including a massive stake in Berkshire Hathaway, which is run by Warren Buffett – one of the world's greatest investors. Based on the fund's most recent report of holdings, shares of Berkshire make up 38.4% of the fund.
 
This huge stake in Berkshire is no accident, and it isn't likely to shrink. You see, the man behind this fund is Stewart Horejsi – a huge Warren Buffett fan. Horejsi bought his first 40 shares of Buffet's company back in 1980, and he's steadily accumulated shares since. He is now a very rich man. "We might be the 10th largest [investor in Berkshire today], or something like that," he said in an interview in 2008.
 
Other top holdings in the Boulder Total Return Fund include some of the world's best businesses that are currently selling at fantastic prices. These include Wal-Mart, Johnson & Johnson, Hong Kong conglomerate Cheung Kong, and Freeport-McMoRan. These companies are selling at an average of just 10 times earnings.
 
In short, if you buy the Boulder Total Return Fund, you're buying many of the world's best businesses... at a 20%-plus discount to their market value.
 
In the past, buying this fund at extreme discounts to liquidation value (officially called "net asset value," or NAV) has paid off. Take a look:
 
 
You would think Horejsi would want to do something about the massive discount. He has a big incentive to see it disappear. He personally owns more than 42% of the fund. So he would be the biggest beneficiary, by far, of that action.
 
A typical technique to narrow this kind of discount is for a fund to start buying back its shares. At least according to its latest semi-annual report, the Boulder Total Return Fund isn't doing this.
 
Another possibility is Horejsi could liquidate the fund and distribute the proceeds. That would be an instant 27% gain from current prices for him. (Of course, he'd give up the management fees from running the fund.)
 
I don't know what the thinking is at the fund. Regardless, the Boulder Total Return Fund is worth considering at its current discount.
 
At the end of the day, you own shares of the world's best businesses – at a 20% discount to their actual stock market prices. Check out the Boulder Total Return Fund today.
 
Good investing,
 
Steve




Further Reading:

Two of this fund's holdings – Wal-Mart and Johnson & Johnson – are considered the best companies in the world. Both are the leaders of their industries... And both pay consistently increasing dividends. As our editor in chief, Brian Hunt, recently pointed out... investors are growing more and more interested in collecting dividends from these large, super-safe companies.
 
Berkshire Hathaway's Warren Buffett is a value investing legend. When the superinvestor bought 1.5 million shares of one discount retailer... Frank Curzio told Growth Stock Wire readers to follow suit. They are now up 30%... Get the details here: Why the World's Greatest Investor Is Loading Up on This Stock.

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THE BIG AIRLINE RALLY ARRIVES

It took a few months, but our "bad to less bad" airline idea is producing big gains right now...
 
Late last year, we ran several charts of the hated airline sector... and noted these stocks could stage an explosive rally if the broad market firmed up.
 
Keep in mind... airlines are legendarily horrible long-term investments. They sport thin profit margins, they're subject to wild swings in fuel costs, and they require lots of capital expenditures to keep the businesses running. But for traders, they are an attractive sector. Airlines tend to go through big, tradable booms and busts. You just have to buy them when conditions look dark and everyone is bearish... and sell when things look bright and everyone is bullish.
 
Last fall was dark for airlines. The economic recovery was in doubt. The sector had suffered a huge selloff. But as you can see from today's chart of industry leader Delta, airlines have rebounded hard in the past month. And we're not "cherry picking" with Delta... Most every member of the airline complex sports a similar chart. This "bad to less bad" rally has taken many players 25% higher in one month.
 
 

premium teaser

A 12% discount and 6.6% dividends from this hybrid fund...
 
Doc loves the upside potential of convertible bonds. And buying at such a steep discount is a great value…
 
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